According to the official press release issued by the U.S. Securities and Exchange Commission on May 16, the regulatory body, indeed, simulated the launch of a fraudulent ICO in order to demonstrate in practice how to avoid falling victim to scammers.
The SEC set up a website, HoweyCoins.com, that mimics a bogus coin offering to educate investors about what to look for before they invest in a scam. Anyone who clicks on “Buy Coins Now” will be led instead to investor education tools and tips from the SEC and other financial regulators.
“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors,” SEC Chairman Jay Clayton explained. “We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.”
The website features several of the enticements that are common to fraudulent offerings, including a white paper with a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime.
“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Owen Donley, Chief Counsel of the SEC’s Office of Investor Education and Advocacy, who doubles as “Josh Hinze” on the HoweyCoins website. “But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.”
It took SEC very little time to build up the fake website. This alone demonstrates just how easy it is to create a scam.
Eric Lombrozo appraised this educational effort by posting the following Tweet:
Bravo to the SEC for educating people about the distinction between cryptocurrency and scams.https://t.co/3COLfzQRnG
— Eric Lombrozo (@eric_lombrozo) May 17, 2018
The SEC has been taking action against fraudulent ICOs since the end of the last year. It started its campaign by freezing the assets of PlexCorps fraud on December 4, 2017. The latter managed to raise about $15 000 000 from thousands of investors since August 2017 before being brought to a stop by the regulator.